Facebook, Amazon, Apple Could Be In Big Trouble Under Biden And A Democrat-Controlled Congress—Here’s What Investors Should Expect

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Facebook, Amazon, Apple Could Be In Big Trouble Under Biden And A Democrat-Controlled Congress—Here's What Investors Should Expect

Top line

As the broader market hits new highs in the prospect of a democratically controlled government and massive new stimulus measures, a number of large tech companies, including FAANG firms Facebook, Amazon, Apple, and Google’s parent Alphabet, all saw losses on Wednesday. Shed new light on government oversight that could fuel a sector that has massively outperformed during the pandemic.

President-elect Joe Biden speaks to reporters before boarding his campaign plane in Nashville … [+] International Airport on October 22, 2020.

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Key factors

Bigha regulation fears came to a head Wednesday after Raphael Warnock (D) defeated Republican Senator Kelly Loeffler and Democrat Jon Ossoff declared victory in his race, with shares of Apple, Microsoft, Amazon, Facebook, Alphabet and Netflix all in between were 0.4% and 2.1% – while the S&P 500 and Dow Jones industrial averages rose 1.5% each.

“To be honest, Georgia’s blue swing is a clear negative for big tech,” Wedbush analyst Dan Ives said of the tech sell-off on Wednesday. He warned of a much closer official inspection and “sharper teeth around the FAANG name” should now be expected.

“The Democratic Party has become increasingly critical of the market power of internet companies with more liberal members like Elizabeth Warren [D-Mass.]Justin Post, an analyst for Bank of America, said in a note just before the election that a “blue wave” election result could put a brake on the profits of media giants like Google and Facebook.

Tighter scrutiny by a democratically controlled Congress would likely include stricter regulation of the use of personal data, according to the Post, but it could go much further: In a 450-page report published in October, House Democrats recommended that Congress stop anti-competitive practices from Curb Amazon, Apple, Google, and Facebook by taking action including “forcing tech companies to break up”.

In a late morning announcement, Adam Crisafulli, founder of Vital Knowledge Media, said big tech names are holding up well on Wednesday despite the significant underperformance, despite the current sentiment making it “hard to imagine tech can do well this week” .

In response to likely Democratic victories, ten-year government bond yields rose more than 1% for the first time since the pandemic began, notes Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance, adding that higher interest rates are likely to hurt technology stocks more than other stocks due to their typically high price relative to profit.

Crucial quote

“While the momentum for the dissolution of FAANG name business models has gained momentum within the Beltway and the European Union in recent years, there has been a lack of political power to make significant changes outside of the stellar political events,” says Ives. “All of this is now changing in the eyes of Wall Street as the risk of a business model review by tech giants Amazon, Google, Apple and Facebook is now in a brighter spotlight, adding to the risk for the entire tech sector.”

tangent

While the race between Ossoff and Republican incumbent David Perdue is still too short, the markets have already unraveled some of the gains and losses that have been priced in under the expectations of a divided Congress – a best-case result that many pundits agreed -Scenario for stocks This is largely due to the political deadlock, which hinders tax hikes and tighter corporate regulation.

What to look for

Expect an ongoing debate over whether Congress should repeal Section 1996, which was incorporated into law in 1996 and effectively provides giants like Alphabet and Facebook with protection against liability for the actions and words of individuals on their platforms. President Donald Trump fought hard (and unsuccessfully) to repeal the legislation during his tenure, but Congress has been actively investigating leading tech CEOs to see if the protections “enable bad behavior by big tech.”

Key background

Tech stocks far outperformed the broader market over the past year. The S&P North American Technology Sector Index, which ranks Facebook, Apple, Amazon and Alphabet in the top 10 positions, and the Nasdaq each gained more than 40%. The S&P, meanwhile, rose 14%. The monolithic growth was carefully examined by the legislators on both sides of the corridor. For example, Warren said in early 2019 that “big tech companies have too much power – too much power over our economy, our society and our democracy”. That tension could reach a tipping point as the Democrats stand ready to take over the house, with support from both parties at least some regulation is very likely. The Trump administration’s Justice Department filed an antitrust lawsuit against Alphabet in late October. This was a clear blow to the company, but it also posed a risk to other tech giants in its ecosystem, Bank of America said at the time, adding that Apple is handling its incredibly high-margin, $ 10 billion revenue from Google per year, which could represent around 10% of the company’s revenue.

Surprising fact

The five FAANG companies have a total market value of around US $ 6 trillion, four times as much as two years ago.

further reading

We took a look at how the stock market could do if Democrats sweep Georgia – and the results are not what you think (Forbes)

“Violent Tech Sale”: Dow scores 400 points, but tech stocks slide as Democrats keep tabs on government (Forbes) control

Betting Markets Have Georgia Senate Outflows As Toss-Ups – This Is What Investors Should Expect If Democrats Make A Profit (Forbes)